Hidden dangers of 'thinning' supply chains

Published on July 11, 2016 by Tony Pelli

Just in Time Distribution and Lean Manufacturing Risks

One of the major changes in company supply chains over the past twenty years has been the adoption of ‘lean’ manufacturing processes and ‘just in time’ distribution methods to trim excess cost. This has often meant the elimination of redundant suppliers, the use of fewer warehouses for ever-shorter periods of time, and shorter production cycles. It’s clear, especially after the recession forced companies to further cut costs that lean supply chains are here to stay. While these leaner processes can certainly save money, they can also exacerbate supply chain disruptions when natural disasters or man-made disasters strike.

Initially conceived as a method to reduce waste within a single factory site, lean processes have since been adapted for all parts of today’s outsourced, decentralized, and globe-spanning supply chains. As a result, temporary disruptions to a single supplier can cripple entire production lines if no alternate supplier is available. Communication difficulties can compound this problem. For example, a German third-party logistics provider is likely to have difficulty contacting their sub-contractors in the event of major storms or strikes in Europe, delaying shipments for their United States-based client.

These types of problems are not restricted to developed markets. Countries such as China are seeing consolidation in previously fragmented sectors such as logistics, while more companies in the country are adopting lean manufacturing processes to compete with lower-cost countries such as Vietnam. While this will undoubtedly enhance efficiency, it risks exposing these businesses and suppliers to more severe interruptions when disruptions do occur.

Mitigating Business Continuity Exposures

What can companies do to avoid the risks of lean supply chains? The first step is identifying what types of risks are most likely and where exactly they might impact your supply chain. By mapping out the supply chain and evaluating where potential ‘choke points’ exist in the provides organizations with the information needed to develop mitigation plans for the most likely business continuity risks, including the identification of possible alternate suppliers.

What lean supply chain challenges do you face, and how are you mitigating business continuity risks?

Tony Pelli, Contributor

Published by: Tony Pelli - Consultant - Quantitative Risk Analysis, Tony has worked with a number of Fortune 500 organizations to evaluate and quantify the risk of security, business continuity, and social responsibility disruption in the supply chain.

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